[Federal Register Volume 59, Number 29 (Friday, February 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3194]


[[Page Unknown]]

[Federal Register: February 11, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33581; File No. SR-CSE-93-02]

 

Self-Regulatory Organizations; Cincinnati Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change and Notice of Filing 
and Order Granting Accelerated Approval to Amendment No. 1 to Proposed 
Rule Change Relating to an Amendment to CSE Rule 11.9(a)(8) Defining 
``Professional Agency Orders'' To Include Futures Commission Merchants 
and Members of Contract Markets

February 4, 1994.

I. Introduction

    On May 24, 1993, the Cincinnati Stock Exchange, Inc. (``CSE'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities 
exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend CSE Rule 11.9(a)(8) to include in the 
definition of ``Professional Agency Orders'' futures commission 
merchants and members of contract markets. Pursuant to this proposed 
rule change and a separate agreement reached by the CSE and the Chicago 
Board of Trade (``CBOT''), the CSE and the CBOT will include the CSE 
National Securities Trading System (``NSTS'') order entry screen on 
CBOT BOTWS work station computers belonging to joint members of the CSE 
and CBOT. On February 2, 1994, the CSE submitted Amendment No. 1 to the 
proposed rule change.\3\
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991). -
    \3\See letter from Robert Ackerman, CSE, to Elizabeth Prout, 
Commission, dated February 2, 1994. Amendment No. 1 states that CSE 
and the CBOT joint members will not have access to CSE NSTS screens 
on BOTWS terminals located on the CBOT trading floor, and clarifies 
that because of this prohibition, CBOT members that make markets in 
futures on a stock index will be allowed to make NSTS markets in 
stocks that comprise that index.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 32649 (July 16, 1993), 58 FR 39841. No 
comments were received on the proposal.\4\
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    \4\The Commission notes that, at their most recent meeting, the 
Intermarket Trading System (``ITS'') participants (i.e., the 
American, Boston, Chicago, Cincinnati, New York, Pacific, and 
Philadelphia Stock Exchanges, the Chicago Board Options Exchange, 
and the National Association of Securities Dealers) discussed the 
present proposal pursuant to their authority under section 8(e)(iii) 
of the ITs Plan respecting any filing affecting CSE Rule 11.9. The 
ITS participants determined that they have no comment to make on 
this filing. See letter from Allan A. Bretzer, Chairman, ITS, to 
Elizabeth L. Prout, Staff Attorney, Commission, dated November 15, 
1993.
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II. Description of the Proposal

    The CSE is modifying the definition of professional agency orders 
to include orders entered for the account of futures commission 
merchants and members of a contract market. The inclusion coincides 
with the agreement reached between the CSE and CBOT whereby joint 
members will be able to include their CSE NSTS order entry screen on 
their CBOT BOTWS work station terminals. The CSE entered into the 
agreement for the purpose of reducing the burden on joint members that 
multiple terminals and telecommunication linkages would impose if the 
member was required to maintain separate NSTS and BOTWS terminals. The 
agreement provides joint members with the flexibility to choose to 
include the NSTS system used by the CSE within the CBOT's BOTWS system, 
and thus save desk space and associated costs that would be present if 
two separate terminals were required.
    The CSE believes that the agreement will provide members with an 
efficient computerized telecommunications linkage to the markets where 
they are members. While joint CSE/CBOT members currently can enter 
stock orders from the CBOT floor via phone or other telecommunication 
network already in place, the NSTS screen will give the CSE member more 
direct access for his or her stock orders.
    The proposal, as amended, states that the CSE and the CBOT agree 
not to allow access to CSE's NSTS on CBOT BOTWS terminals located on 
the CBOT floor.\5\ As amended, the proposal also states that the 
exchanges may pursue BOTWS on-floor NSTS displays in the future after 
trading has begun by joint members. Amendment No. 1 notes that this 
prohibition of NSTS on-floor access makes moot certain language in the 
original proposal which stated that a CBOT member that makes markets in 
futures on a stock index will not be allowed to make markets in stocks 
that comprise that index via CSE NSTS screens located on the floor of 
the CBOT.
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    \5\See supra note 3.
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III. Discussion and Commission's Findings

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, with the requirements of Sections 6(b) and 
11A(a)(1)(C)(iii).\6\ Section 6(b) requires, among other things, that 
the rules of an exchange be designed to promote just and equitable 
principles of trade and to protect investors and the public. Section 
11A(a)(1)(C)(iii) states, among other things, that it is in the public 
interest and appropriate for the protection of investors to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in securities.
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    \6\15 U.S.C. 78f(b) and 78k-1(a)(1)(C)(iii) (1988).
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    The Commission believes that the proposed rule change is consistent 
with sections 6(b) and 11A(a)(1)(C)(iii) because joint CSE/CBOT members 
now will be able to access both CBOT futures information and CSE NSTS 
screens on one terminal, thereby using what should be a more efficient 
means to access market information. The Commission notes that since the 
only firms who will have access to the terminals will be joint CSE/CBOT 
members, both CBOT data and NSTS screens currently are available 
individually to those firms. Thus, the proposal should merely serve to 
reduce the number of terminals required to retrieve market information 
and execution screens, thereby enhancing the availability of 
information with respect to quotations for and transactions in 
securities to those joint members.
    The Commission emphasizes that, while the proposal should serve to 
provide beneficial efficiencies to joint CSE/CBOT members, the CSE must 
ensure adequate market surveillance of the transactions that are 
effected on the BOTWS NSTS screens. The Commission notes that joint 
securities and commodities exchange membership, coupled with readily 
available market information and transaction execution screens may give 
rise to particular types of trading patterns that may require specially 
formulated market surveillance methods. The Commission expects the CSE 
to act accordingly with respect to its market surveillance.
    With respect to Amendment No. 1 to the proposal, the Commission 
believes that the CSE and CBOT's agreement to limit NSTS BOTWS access 
to off-floor terminals should serve generally to avoid on-floor side-
by-side trading issues that otherwise would be raised. The Commission 
notes, however, that the CSE has only agreed to a temporary prohibition 
of on-floor BOTWS access to NSTS data. The Commission is requiring 
that, prior to making any NSTS data available to on-floor CBOT 
terminals, the CSE must file a new proposed rule change with the 
Commission so that side-by-side trading issues and other issues that 
may arise can be addressed.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. The Commission finds 
that granting accelerated approval to the amendment is consistent with 
the Act, as the amendment removes concerns related to side-by-side 
trading, and accelerated approval is appropriate in order to allow the 
CSE and CBOT to begin making the NSTS screens available as soon as 
possible. Further, as originally filed and published in the Federal 
Register for the full statutory period, the proposal provided that 
BOTWS terminals located both on the CBOT floor and at off-floor 
locations would have received NSTS screen capabilities. Amendment No. 1 
provides that only off-floor terminals will receive NSTS screens. The 
Commission did not receive comments on the proposal with respect to 
either on-floor or off-floor BOTWS terminals.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying at the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of the CSE. All 
submissions should refer to File No. SR-CSE-93-02 and should be 
submitted March 4, 1994.

V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder.
    It is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\7\ that the proposed rule change (SR-CSE-93-02) is approved.
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    \7\15 U.S.C. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3194 Filed 2-10-94; 8:45 am]
BILLING CODE 8010-01-M